When Your Family Business Has a Conflict Over Governance

“Maybe we should just sell this thing,” Connor lamented to his brother Liam as they departed the spring owner meeting of their family’s heavy-equipment business. For the fifth quarterly meeting in a row, discussions with their siblings, Dan and Matt, about refreshing their independent board members had ended in a stalemate. “How can we ever resolve this impasse if we’re not speaking outside of the meeting?”

Four years earlier, the Shipp* brothers were very close. They were the third generation to work in the business, they enjoyed discussing big decisions, and they always came to agreement. When their father died unexpectedly, the family wasn’t worried about what would happen next: Their parents had gifted all shares of the business equally to each of their four children as part of their estate plan. And, since the brothers got along, their father reasoned that requiring 76% approval for major decisions wouldn’t ever be a problem for the brothers or the business, so he enshrined it in the company’s legal documents.

But that formal legal requirement—which essentially meant all four brothers would need to agree on any major decision—set a dangerous and often unattainable threshold, especially after a particularly acrimonious and poorly performing acquisition led to the brothers breaking off into warring factions. No one fully understood what a stabilizing force their father had been, especially his ability to bring individual dissenters toward consensus. In his absence, misunderstandings and accusations flew increasingly freely, and the brothers became unable to unanimously agree on any meaningful change for years. Their relationships worsened, while the business was quickly stagnating, losing market share, hemorrhaging customers, and experiencing significant profit declines.

The Shipp family’s experience is not that uncommon. Sometimes the best intentions of the senior generation inadvertently set their next generation up for what we call “structural conflict”: conflict that arises not from behaviors or relationships, but from governance structures, including legal agreements and how ownership is distributed.

But your family business doesn’t have to be doomed to living with baked-in structural conflict. Whether you’re the senior generation of owners trying to set the next generation up for success or you’re the next generation inheriting a family business, you can uncover hidden structural conflicts to ensure a path to effective and productive decision-making.

Sources of Structural Conflict

Oftentimes disagreements among family members are assumed to stem from one or more bad actors in the system—individuals who are distrustful, unduly obstinate, or hell bent on arguing.

While this is sometimes the case, far more often we find the disagreement derives from an underlying structural conflict, which can arise in several ways.

With the Shipp family, structural conflict reared its head due to issues of control. We saw a similar situation in a French confectionery we worked with. The two sisters who owned the business reached an agreement on what would happen if either wanted to end their partnership. They were guided by “one cuts, the other chooses”—a rule of thumb for dividing desserts, ensuring that the cutter will make sure both pieces are exactly the same size so the chooser doesn’t get the option for a bigger slice. This approach had worked for them as children, so they reasoned it would work in business as well.

According to their partnership agreement, either sister could deliver a sale notice that included a sale price. That notice would trigger a 90-day period where the other sister would have to decide either to sell her 50% interest at the sale price or buy out her sister’s interest at the sale price. They believed that such an agreement would ensure that a sale would be fair to both sides.

But years later, after the business was prominently featured in the series finale of a hit HBO TV series, business was booming beyond their wildest expectations, with a rapidly expanding international footprint. Ironically, just as the business was thriving, each sister felt a rising sense of paranoia. At any moment one sister could name a price that would force a huge decision. How could they buy out their sister with the business having increased so much in value? Would this mean they could be forced out of the partnership if the other sister named too high a price?

The confectionery’s leadership team and suppliers could see that something had shifted between the sisters. But since they had no idea about the sale-notice provision, they just assumed the sisters were no longer getting along. In fact, structural conflict was really to blame: The sale notice was like a nuclear button that either sister could press at any moment.

Other drivers of structural conflict include economic interests and organizational design. One senior generation of a family business split it into three separate entities, giving each of their daughters a larger interest in one company plus a smaller interest in their sisters’ businesses. Because of their economics, each sister was incentivized to compete (often unproductively) for investment dollars and resources for their own business, frequently to the detriment of the whole, and occasionally to their own detriment (e.g., when one sister’s business delivered a more attractive risk-adjusted return). Instead of supporting one another, this structural conflict made them competitors for capital.

Structural conflict based on control, economics, or design often builds up over time. Perceived slights, the stories of which are passed down to future generations, can entrench the structural conflict, embedding narratives of “us vs. them.”

When stuck in the doldrums of structural conflict, it becomes hard to imagine that people can ever change—a rational perspective. For the Shipp brothers, who’ve been at odds for years, what would lead them to believe that the relationship could improve?

How to Resolve a Structural Conflict

The risks of structural conflict are both overt and subtle. It can result in feuds that spill out into public view, damaging reputations and driving away customers and top non-family talent. It can also paralyze a business, limiting the owners’ ability to make key decisions. Left unaddressed, each of these risks inevitably hurt the bottom line.

But structural conflict can be hard to spot. In our experience, many owners, especially those in later generations, aren’t familiar with their legal documents and other agreements—and therefore don’t have a firm grasp on all the rules and procedures to be followed when consensus can’t be reached. Instead, they rely on stories and narratives of “how we do things here.” Without fully appreciating how decisions are made, it becomes impossible to know whether the legal agreements are driving conflict or not.

To successfully mitigate structural conflict, the first step almost always is to depersonalize the issue. It’s not about any of the people involved, it’s about the structures. Once this is clear, you can try several approaches to change or minimize the situation:

• Change structures
• Create “enacted governance”
• Wait out the structural conflict
• Separate

To read the full article, click here.

*Identifying details have been changed

Originally published on HBR.org, 21 February 2025.